An article published in customer relationship management August 2012 edition was titled "in search of the perfect metric". The author starts by saying a perfect universal customer metric does not exist. The author Mr. Patrick Gibbons at Walker provides two reasons customer metrics fall short.
The first reason a metric fails is that the metric is not aligned to the business goals of the company. He notices that often it is because the metric is a popular one or one that may be touted in the literature or a book but has no connection with the business. Snce the metric doesn't track business , it often fails to predict customer tendencies. The second reason offered by Mr. Gibbons is that the metric is not used effectively. He suggests the employees often see a metric merely as a rating as opposed to a guide for improving the quality of decision-making.
He suggests that a metric can only be effective if the following steps are taken successfully. The first step is awareness, which required that employees must become familiar to the metric. The second step is understanding, which means that employees must understand how the metric works and how they are use it. The third step is belief, which means that the employees need to believe that the metric is valid and will be a useful tool. The fourth and final step is action, which will never happen if the first three steps are not taken. The fourth step translates the metric so that it will either guide some form of process improvement or will validate the successful operation of the current process.
Mr. Gibbons concludes there is a perfect customer metric. He suggests that this is the one that aligns with your business and is put to use in productive ways. This is where Mr. Gibbons and the Customer Institute part company.
It is the belief of the Customer Institute that there is no perfect customer metric. We believe that no metric can capture all aspects of every customer being measured. The metric can become a major measurment trap. Management will eventually believe that the metric is everything. This will lead to additional metrics when that perfect metric shows negative results. If/when those secondary results continue to show decline then more metrics will be added. Eeventually you become surrounded by metrics and have lost sight of the customers in the maze of numbers.
The bottom line is there is no perfect customer metric! I don't believe that in my lifetime we will develop a metric that totally captures the customer. When that day comes, if it ever comes, businesses will easily be run by robots and at that time all the customers will most likely be robots.
Saturday, October 6, 2012
Friday, August 17, 2012
Some Thoughts about the Meaning of Loyalty
As I read many blogs and articles in the journals and the newspapers the loyalty is used often incorrectly. I would like to spend several paragraphs offering several possible definitions for customer loyalty. Often the word loyalty is used with the intent that the customer will always purchase the product or service from a specific vendor. This is a leap of faith when one believes that customer will never stray. Consider the following possible definitions for loyalty that, in my mind, make the most sense.
Using the logic of the previous paragraph every purchase that the customer makes will be with a specific vendor. Thus a sequence of purchases To Vendor A would be described as the following sequence: A, A, A, A, etc. This scenario will almost never happen in the real world for many reasons. Some reasons include:
1. Vendor A has an inventory stock out.
2. Vendor A has introduced a significant price increase.
3. Vendor B has introduced a significant price reduction.
4. Vendor B has introduced a replacement product with greater performance.
5. The customer does not want to become restricted to one vendor.
Consider variation on a definition of loyalty to include the possibility that not all product and/or services will be purchased from one vendor. In that case the customer might be considered loyal to vendor A with the following purchase sequence: A, A, B, A, B, A, etc. Under the circumstances the customer is providing major share of pocket to vendor A, but should customer B considered loyal. to vendor A? Even though vendor A does not capture 100%, both customersA and B may still be considered loyal.
How about the measure of customer loyalty that considers a customer to be loyal if the customer scores a 9 or 10 on a 0 to 10 satisfaction scale. What is the logic that supports the notion that because the customers are satisfied the customer must also be loyal? The NPS Measurement system would identifya customer scored either at nine or 10 as a promoter . A promoter, according to the NPS system, is a customer who acts like a loyal customer in that the customer promotes the company or product for which he has scored a 9 or 10.
There is another indication of loyalty that is often used. In this process a loyal customer is defined as a customer that scores a 10 on a 10 point satisfaction scale, a 10 on another 10 pint scale that measures the likelihood the customer will buy again, and a 10 on still another scale that measures the likelihood that the customer will recommend the company or product. If the customer scores the maximum value of 10 on all three scales the customer is considered a loyal customer.
The bottom line is there is no one definition in the market today that everybody agrees defines a loyal customer. As noted in the preceding paragraphs there are many ways of defining loyalty. The conclusion at this point in time is that customer loyalty is something that every company strives to achieve for those customers that represent value for them. The next several blogs will focus on the other customer states noted previously.
Using the logic of the previous paragraph every purchase that the customer makes will be with a specific vendor. Thus a sequence of purchases To Vendor A would be described as the following sequence: A, A, A, A, etc. This scenario will almost never happen in the real world for many reasons. Some reasons include:
1. Vendor A has an inventory stock out.
2. Vendor A has introduced a significant price increase.
3. Vendor B has introduced a significant price reduction.
4. Vendor B has introduced a replacement product with greater performance.
5. The customer does not want to become restricted to one vendor.
Consider variation on a definition of loyalty to include the possibility that not all product and/or services will be purchased from one vendor. In that case the customer might be considered loyal to vendor A with the following purchase sequence: A, A, B, A, B, A, etc. Under the circumstances the customer is providing major share of pocket to vendor A, but should customer B considered loyal. to vendor A? Even though vendor A does not capture 100%, both customersA and B may still be considered loyal.
How about the measure of customer loyalty that considers a customer to be loyal if the customer scores a 9 or 10 on a 0 to 10 satisfaction scale. What is the logic that supports the notion that because the customers are satisfied the customer must also be loyal? The NPS Measurement system would identifya customer scored either at nine or 10 as a promoter . A promoter, according to the NPS system, is a customer who acts like a loyal customer in that the customer promotes the company or product for which he has scored a 9 or 10.
There is another indication of loyalty that is often used. In this process a loyal customer is defined as a customer that scores a 10 on a 10 point satisfaction scale, a 10 on another 10 pint scale that measures the likelihood the customer will buy again, and a 10 on still another scale that measures the likelihood that the customer will recommend the company or product. If the customer scores the maximum value of 10 on all three scales the customer is considered a loyal customer.
The bottom line is there is no one definition in the market today that everybody agrees defines a loyal customer. As noted in the preceding paragraphs there are many ways of defining loyalty. The conclusion at this point in time is that customer loyalty is something that every company strives to achieve for those customers that represent value for them. The next several blogs will focus on the other customer states noted previously.
Saturday, July 28, 2012
Some Thoughts about Average Satisfaction Scores
The Customer Institute was recently at a conference regarding customer satisfaction and loyalty. The topic of average satisfaction came up. As it turns out many of the companies represented at the conference use measurements of customer satisfaction and specifically they use measures of average satisfaction without considering the fact that customers exist in many states. This blog will examine one way to provide granularity to the customer base.
This is a partial discussion of the presentation made at the conference by the Customer Institute. The focus of the presentation was to provide an analogy between inventory and customers. The major point of the presentation was to show inventory has different values depending on its state and the same holds true for customers.
Inventory can be described as having the following characteristics:
1. Raw material
2. Work in process
3. Need to repair
4. Scrap
5. Finished goods.
The analogies between these states of inventory and customer states are described in the following paragraph.
The customer analogy to raw material inventory is a potential customer base. Similarly, the customer analogy to work in process inventory is a new customer in which value is being added with each encounter. The customer who has a problem with either the product or the service would be analogous to a inventory that is in need of repair. There are some customers that no longer offer a good fit between the customer demands in the product or service the company is providing. These customers have the same characteristic is scrap material. The fifth category, finished goods, is equivalent to the loyal customer.
The preceding paragraph gives an indication that old inventory and customers have multiple states. When a customer satisfaction measurement is taken is often an average of the satisfaction for customers in all the states combined. While in averages and indication of something it certainly is not a metric that provides management direction other than "feel-good" or "feel-bad."
The bottom line is that the customer satisfaction metric when used as an average for all customers measured, confounds the satisfaction metric for each state. It is only when the satisfaction level is measured for each customer state can management optimize them properly allocate resources.
I'll expand this discussion in future blogs to point out some of the ways in which customer metrics can be tuned to a different customer states as they relate to inventory.
This is a partial discussion of the presentation made at the conference by the Customer Institute. The focus of the presentation was to provide an analogy between inventory and customers. The major point of the presentation was to show inventory has different values depending on its state and the same holds true for customers.
Inventory can be described as having the following characteristics:
1. Raw material
2. Work in process
3. Need to repair
4. Scrap
5. Finished goods.
The analogies between these states of inventory and customer states are described in the following paragraph.
The customer analogy to raw material inventory is a potential customer base. Similarly, the customer analogy to work in process inventory is a new customer in which value is being added with each encounter. The customer who has a problem with either the product or the service would be analogous to a inventory that is in need of repair. There are some customers that no longer offer a good fit between the customer demands in the product or service the company is providing. These customers have the same characteristic is scrap material. The fifth category, finished goods, is equivalent to the loyal customer.
The preceding paragraph gives an indication that old inventory and customers have multiple states. When a customer satisfaction measurement is taken is often an average of the satisfaction for customers in all the states combined. While in averages and indication of something it certainly is not a metric that provides management direction other than "feel-good" or "feel-bad."
The bottom line is that the customer satisfaction metric when used as an average for all customers measured, confounds the satisfaction metric for each state. It is only when the satisfaction level is measured for each customer state can management optimize them properly allocate resources.
I'll expand this discussion in future blogs to point out some of the ways in which customer metrics can be tuned to a different customer states as they relate to inventory.
Saturday, July 21, 2012
Vendor Relationship Management
In the Saturday issue of the Wall Street Journal and the section "Review" there's a wonderful article about "The Customer as a God." The key point the author is making that with the advent of social media the customer is becoming stronger and stronger and, in fact, there may be a movement away from CRM which is Customer Relationship Management to VRM which is Vendor Relationship Management. The idea that companies will manage the customers may be evolving to the point where customers will be managing their vendors.
The time is quickly arriving when the availability of information on the Internet about companies will be so comprehensive that individual customers can quickly and accurately determine the best place to make purchases. The author of the article Mr. Searls is the author of "The Intention Economy: When Customers Take Charge" which was published by the Harvard business review press. The implications of this idea will ultimately have a profound effect on what we currently mean by customer satisfaction and customer loyalty. No longer will companies be the dominant force in the company/customer relationship. The customer will become the dominant force and will make decisions based on a greater set of data but also instantly available data.
It is not clear what the bottom line is for this perspective of changing the customer/company relationship. Perhaps the limiting factor for the time to make this transition will be the customers.
The time is quickly arriving when the availability of information on the Internet about companies will be so comprehensive that individual customers can quickly and accurately determine the best place to make purchases. The author of the article Mr. Searls is the author of "The Intention Economy: When Customers Take Charge" which was published by the Harvard business review press. The implications of this idea will ultimately have a profound effect on what we currently mean by customer satisfaction and customer loyalty. No longer will companies be the dominant force in the company/customer relationship. The customer will become the dominant force and will make decisions based on a greater set of data but also instantly available data.
It is not clear what the bottom line is for this perspective of changing the customer/company relationship. Perhaps the limiting factor for the time to make this transition will be the customers.
Monday, July 2, 2012
Referral Performance Score
Aite Group,a research firm has developed a new metric they have called "referral performance score. This metric tracks the percentage of customers of financial institutions recommend other customers and who may increse their own account balances and add new accounts.
The Aite Group suggests that this new metric, (the referral performance score, "RPS") is an improvement over the net promoter score (NPS). This new metric goes beyond intention and measures customer actions. They note that the new metric combines both growth and referral behavior. Since it is based on behavior Aite suggests that it provides a more accurate measure of customer loyalty. Their new metric were developed from the following industry statistics:
1. The percent of customers who referred new customers.
2. The percent of customers who grew thier relationship with the institution.
For example Aite surveyed 1115 consumers and found 5% referred their financial institution and grew their accounts in the year ending March, 2012. On the other hand 47% referred their credit unions compared to 32% who referred a large bank. They also found that 7.5% of credit union customers grew their assets.
The referral performance metric is computed by multiplying the percentage who refer the bank by the percentage who grew their assets. An example is the credit union with 47% referral and 7.5% grwoth in assets. This yields a referral performance metric of 47 times 7.5 which yields a score of 352.5. The range of values for the referral performance score is 0 to 10,000. I am not sure what 100% referrals means since a custoemr can provide more than one referral; but I think 100% of customers can provide growth iin thier accounts.
The score obviously needs some calibratio so that one can decide what a score of 352.5 means. Is it good or bad? It seems to count all financial institutions the same no matter the size. That may suggest another refinement.
The bottom line is this appears to be a more direct measure of customer loyalty than just intention. This metric has potential but until there is better understanding of the impact of institutional size on the metric and some understanding on what is a reasonable scale, the metric has limited value.
The Aite Group suggests that this new metric, (the referral performance score, "RPS") is an improvement over the net promoter score (NPS). This new metric goes beyond intention and measures customer actions. They note that the new metric combines both growth and referral behavior. Since it is based on behavior Aite suggests that it provides a more accurate measure of customer loyalty. Their new metric were developed from the following industry statistics:
1. The percent of customers who referred new customers.
2. The percent of customers who grew thier relationship with the institution.
For example Aite surveyed 1115 consumers and found 5% referred their financial institution and grew their accounts in the year ending March, 2012. On the other hand 47% referred their credit unions compared to 32% who referred a large bank. They also found that 7.5% of credit union customers grew their assets.
The referral performance metric is computed by multiplying the percentage who refer the bank by the percentage who grew their assets. An example is the credit union with 47% referral and 7.5% grwoth in assets. This yields a referral performance metric of 47 times 7.5 which yields a score of 352.5. The range of values for the referral performance score is 0 to 10,000. I am not sure what 100% referrals means since a custoemr can provide more than one referral; but I think 100% of customers can provide growth iin thier accounts.
The score obviously needs some calibratio so that one can decide what a score of 352.5 means. Is it good or bad? It seems to count all financial institutions the same no matter the size. That may suggest another refinement.
The bottom line is this appears to be a more direct measure of customer loyalty than just intention. This metric has potential but until there is better understanding of the impact of institutional size on the metric and some understanding on what is a reasonable scale, the metric has limited value.
Saturday, June 30, 2012
Did You Ever Hear of the Gettysburg Principles
David Weinberger wrote an interesting article in the Harvard Business Review which describes an interesting perspective of how to build customer loyalty. He offers the question of whether a company meets the Gettysburg principles. From Lincoln's Gettysburg address the question asks for a given business is your business of the people, by the people and for the people?
OF THE PEOPLE means that the company appears to share the same values as its customers. It also appears to treat its employees like individuals rather than numbers. It also has a sense of humor and can admit it is not perfect. Mr Weinberger suggests that Ben and Jerry's does a pretty good job of being OF THE PEOPLE.
BY THE PEOPLE means that customers appear to have played a part in creating it. Wikipedia is just such a company. Customers beleive they are a part of the company even if when they have no ownership.
FOR THE PEOPLE means the company is completely focused on the customer. The company wants to satisfy the customer with every aspect of its business. Apple stores may be a good example of being FOR THE PEOPLE.
It is not easy to provide customers with all the principles to get loyalty. It is possible to gain loyalty by meeting two of the three principles. The good news is that each principle is not a black or white characteristic. That means it is not that you either have it or you don't. There is a range of values for each and a company does not need a perfect score for a principle for it be considered.
Some of the examples that Weinberger are:
1. Amazon provides excellent customer service makes it a company FOR THE PEOPLE. It's openness and the fact that it provides openness of its customer reviews suggests it is BY THE PEOPLE. however, its corporateness does not offer customers a chance to feel that it is OF THE PEOPLE.
2. Craigslist seems to hit all three principles. It seems to have built loyalty even though better technology services have come along because it appears to satisfy all three principles.
3. Google has hit all three in the past. Since it has become a mega corporation it is no longer OF THE PEOPLE and with its increasing interest in putting advertising on the pasges it is losing its ability to be FOR THE PEOPLE.
4. Facebook seems to be clearly BY THE PEOPLE. It no longer feels like it is OF THE PEOPLE or FOR THE PEOPLE. The loss of these two principles may be one of the reasons that Facebook is losing some of the glamor it once had.
These three principle really are another way of stating customer loyalty.
The bottom line is that companies should try to be OF US or FOR US even when it can't be BY US. When a company loses sight of these principles, customers will lose the connection and become vulnerable to competitive offers. When selling on the internet that competitive offer may be only one click away.
OF THE PEOPLE means that the company appears to share the same values as its customers. It also appears to treat its employees like individuals rather than numbers. It also has a sense of humor and can admit it is not perfect. Mr Weinberger suggests that Ben and Jerry's does a pretty good job of being OF THE PEOPLE.
BY THE PEOPLE means that customers appear to have played a part in creating it. Wikipedia is just such a company. Customers beleive they are a part of the company even if when they have no ownership.
FOR THE PEOPLE means the company is completely focused on the customer. The company wants to satisfy the customer with every aspect of its business. Apple stores may be a good example of being FOR THE PEOPLE.
It is not easy to provide customers with all the principles to get loyalty. It is possible to gain loyalty by meeting two of the three principles. The good news is that each principle is not a black or white characteristic. That means it is not that you either have it or you don't. There is a range of values for each and a company does not need a perfect score for a principle for it be considered.
Some of the examples that Weinberger are:
1. Amazon provides excellent customer service makes it a company FOR THE PEOPLE. It's openness and the fact that it provides openness of its customer reviews suggests it is BY THE PEOPLE. however, its corporateness does not offer customers a chance to feel that it is OF THE PEOPLE.
2. Craigslist seems to hit all three principles. It seems to have built loyalty even though better technology services have come along because it appears to satisfy all three principles.
3. Google has hit all three in the past. Since it has become a mega corporation it is no longer OF THE PEOPLE and with its increasing interest in putting advertising on the pasges it is losing its ability to be FOR THE PEOPLE.
4. Facebook seems to be clearly BY THE PEOPLE. It no longer feels like it is OF THE PEOPLE or FOR THE PEOPLE. The loss of these two principles may be one of the reasons that Facebook is losing some of the glamor it once had.
These three principle really are another way of stating customer loyalty.
The bottom line is that companies should try to be OF US or FOR US even when it can't be BY US. When a company loses sight of these principles, customers will lose the connection and become vulnerable to competitive offers. When selling on the internet that competitive offer may be only one click away.
Wednesday, June 20, 2012
A New Dimension - Customer Rage
A national phone survey of 10,000 households was completed in September, 2011. The study was performed by the Center for Services Leadership at the W.P Carey School of Business at Arizona State University. The objective was to get an in-depth look at dissatisfaction.
The results of the study suggests that more than 50 million Americans had a problem with a product or service bought with the past year. The study is based on one conducted by the White House in 1976. This study is the fifth wave of that original study.
Some of the findings of the study are:
1. Complainant satisfaction has decreased 2% since the original study.
2. 90% of those complaining in the latest survey say they just wanted to be treated with dignity.
3. 40% believed they were treated with dignity.
4. The percent of respondents who reported experiencing a product or service problem has increased from 32% in the original study through a gradual climb to 45% in the most recent study.
5. The number of angry customers is high but the level of rage has dropped from 68% in the 2003 to 2011 to 60% in the new study.
In this case rage is noted as those customers who were either extremely or very upset.
Some other findings included the following:
1. The biggest peeve is customers lose time dealing with the problem. The average number of contacts required to resolve a problem was 4.4 contacts.
2. 61% of those who complain say the time spent complaining was worthwhile.
3. 88% of those in the new study shared their story with others.
4. 27% of those who complained posted the problem to the Internet.
5. More people posted good experiences to the the Internet that those who posted bad experiences by a margin of two-to-one.
The study indicated that spreading stories by social networking is more than 11 times greater than traditional word of mouth.
Ultimately 47% of those who complained felt they got nothing.
The bottom line is that customers appear to be complaining more and getting little satisfaction as a result of their complaining. Studies in the past have shown that ineffective handling of customer problems may be worse than not responding to complaints at all. On the other hand a well managed complaint can increase customer loyalty. The decision of which is better is obvious. This is not rocket science.
The results of the study suggests that more than 50 million Americans had a problem with a product or service bought with the past year. The study is based on one conducted by the White House in 1976. This study is the fifth wave of that original study.
Some of the findings of the study are:
1. Complainant satisfaction has decreased 2% since the original study.
2. 90% of those complaining in the latest survey say they just wanted to be treated with dignity.
3. 40% believed they were treated with dignity.
4. The percent of respondents who reported experiencing a product or service problem has increased from 32% in the original study through a gradual climb to 45% in the most recent study.
5. The number of angry customers is high but the level of rage has dropped from 68% in the 2003 to 2011 to 60% in the new study.
In this case rage is noted as those customers who were either extremely or very upset.
Some other findings included the following:
1. The biggest peeve is customers lose time dealing with the problem. The average number of contacts required to resolve a problem was 4.4 contacts.
2. 61% of those who complain say the time spent complaining was worthwhile.
3. 88% of those in the new study shared their story with others.
4. 27% of those who complained posted the problem to the Internet.
5. More people posted good experiences to the the Internet that those who posted bad experiences by a margin of two-to-one.
The study indicated that spreading stories by social networking is more than 11 times greater than traditional word of mouth.
Ultimately 47% of those who complained felt they got nothing.
The bottom line is that customers appear to be complaining more and getting little satisfaction as a result of their complaining. Studies in the past have shown that ineffective handling of customer problems may be worse than not responding to complaints at all. On the other hand a well managed complaint can increase customer loyalty. The decision of which is better is obvious. This is not rocket science.
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